During the past decade neuroeconomists have confirmed the insights of Adam Smith. People who trade money with strangers in a laboratory setting have an instinctive sense of fair play and reciprocity. Chimps and capuchin monkeys also possess this instinct. These non-human primates display, just as we do, a sense of trust in response to generosity, and resentment in the face of selfishness. Such brooding resentment, in fact, that volunteers (and chimps) will often forgo reward in order to punish selfish participants. This neuroeconomic research suggests that individuals’ preferences are determined not by what is good for them as a person, as a paternalist moral philosopher would say, but determined by the satisfaction of moral sentiments bound to subjective preferences.

Briefly my argument is that sympathy is a pre-condition of moral behavior. But I will argue that individual preference satisfaction is a better, more preferable, theory for welfare economics. The two theories actually fit together, rather than, as Hausman and Macpherson suggest, they are opposed. Hausman and Macpherson are two contemporary economists who have argued that economic models need to include actual preferences. Not simply what the paternalist moral philosopher argues is good for the person.

In the first chapter of The Theory of Moral Sentiments Adam Smith writes: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.” This principle in man’s nature which no doubt is a true principle, may be thought to negate the doctrine of the Invisible Hand. Smith does not deny selfishness. Not only does he say “how selfish soever,” but he also writes that the benevolent man “gets nothing from it” but adds “except the pleasure of seeing it.” This seems to rule out benevolence the fruits of which cannot be observed (or at best imagined) and that is important in thinking about the principle.

Hausman and Macpherson, two contemporary economists, argue in Economic Analysis, Moral Philosophy and Public Policy for a preference satisfaction theory of well-being as opposed to Smith’s “mental-state” theory of welfare, which Parfit considers an “objective-list” view, and which the authors themselves consider to be a “perfectionist” theory. Hausman and Macpherson say that welfare economists ought to find individual preference utilitarianism attractive and embrace it because this is similar to standard welfare economics. “Just define the rough-and-ready utility functions,” they say, “that will represent the preferences of the individual affected and stipulate a way of making interpersonal utility comparisons.” If one looks past the complications of actual life to the central realities captured in standard economic models, one can see that welfare is in essence the satisfaction of preferences.

Smith asserts in the Theory of Moral Sentiments that each individual, though he can have no immediate experience of what other men feel, is endowed with the capacity to form the idea of their feelings by imagining what he himself would feel in the same situation. Hence we are able to derive sorrow from the sorrow of others and happiness from their happiness. This capacity for fellow-feeling, which Smith calls sympathy, is present in all men.

Sympathy, according to Smith, is the basis of our “moral faculties.” In the first place, sympathy is the foundation of our judgment of the conduct and character of others. When we see someone else angry we will approve of his anger if, upon examining the situation, we find that we too would become angry if we had been in his position. Though we are only spectators, in imagination we change places with the other person, and our sympathetic anger harmonizes with his original anger. This harmony of sentiments constitutes a judgment that the other person’s behavior is proper. But if we find that his reasons for becoming angry are not such that we could share–that we, in short, would not have become angry under the same circumstances–we will not be able to sympathize with him. This disharmony of sentiments constitutes a judgment that the other person’s behavior is improper. There is another set of qualities ascribed to the behavior of mankind, distinct from propriety and impropriety, which are also the objects of a species of approbation and disapprobation. These are merit, the quality of deserving reward; and demerit, the quality of deserving punishment. The first quality requires us to share sympathetically in the gratitude felt by the receiver of the benefit; the second, to share sympathetically in the resentment felt by the receiver of the hurt.

Sympathy is also the foundation of our judgment of our own conduct and character. It is significant that Smith deals first with our judgment of the behavior of other people, for he holds that all our moral judgments are dependent on our social situation. A solitary man could not judge of the propriety or merit of his own actions. To be morally conscious, one must look at one’s own behavior as other people see it. The device for doing this is what Smith calls the “impartial spectator” within the breast of man. The man who has lived in society long enough to become morally conscious divides himself into two, and judges his own passions as other people would judge them. He carries out this division because he has a natural desire for the love, honor, and gratitude of other people–a desire that arises out of sympathy. He uses the “man within the breast” to humble the arrogance of his self-love, bringing it down to a level with which other people can appreciate.

The sophisticated way in which Smith uses the “man within the breast” is shown by his treatment of the love of praise and the love of praiseworthiness. Because of our desire for love, honor, and gratitude, we love to be praises. Smith then asks whether we love to be worthy of praise for its own sake, or merely because we believe that being worthy of praise will bring us praise. Smith’s answer is that we naturally desire not only to be praised, but also to be worthy of praise. If we are praised when we are not worthy of praise, the man within the breast tells us that we do not deserve the praise, and we do not derive satisfaction from it. Contrariwise, if we do a good act we still get satisfaction from the praise of our internal spectator, even though no other person praises us for it. Thus, our love of being worthy of praise comes to be independent of our love of being praised by other people. In this way the individual is rendered anxious not only to appear fit, but also really to be fit, to live in society.

In an attempt to show the extent to which “the man within” corrects the otherwise unnatural inequality of our sentiments, Smith makes a distinction between “passive feelings” and “active principles.” Our passive feelings, Smith states, are almost always sordid and selfish. For example, if a “man of humanity” in Europe knew that he was to lose his little finger tomorrow, he would not sleep tonight; but provided he never saw them, he would sleep securely if he were to learn that a hundred million Indonesians had been swallowed up by a tsunami. Our active principles, on the other hand, are often generous and noble. Despite the fact that his passive feelings would be more disturbed by the destruction of his finger than by the destruction of a hundred million Indonesians, this same man would certainly be unwilling to have the lives of a hundred million Indonesians sacrificed in order to save the finger. Indeed, human nature would startle with horror at the thought. The man within the breast, who regards every situation from the point of view of the impartial spectator, preserves harmony between men in the face of our selfish feelings.

Smith’s moral system, then, is based on the single connecting principle of sympathy. Using this principle and its various articulations–the sense of propriety, the sense of merit, the man within the breast–Smith claims to have constructed a moral system more comprehensive than any other moral system. “If we examine the most celebrated and remarkable of the different theories which have been given concerning the nature and origin of our moral sentiments,” Smith states at the beginning of the section of The Theory of Moral Sentiments dealing with “Systems of Moral Philosophy.”

But in the Theory of Moral Sentiments, Smith never presents his moral system as a mere pleasure or mental machine, like the illustration given by Robert Nozick, nor does he ever suggest that the principle of sympathy does not actually exist within human nature. Yet Smith has no explicit epistemological principles by which he is able to substantiate the existence in the external world of the principle of sympathy. He has never detected this principle in man, nor has he ever observed “moral faculties” to which it supposedly gives rise. As the recent studies in neuroeconomics suggest, Smith’s mental state theory of welfare has been validated. Neuroeconomics has shown us that “the man within” corrects the otherwise unnatural inequality of our sentiments, and affirms our sense of fairness.

Smith’s failure to admit the purely mental nature of his moral system may be in part a result of the fact that to do so would be to come close to admitting that his was an unacceptable “hypothetical” system, rather than a system based on fact. Hausman and Macpherson, who are opposed to the idea of a mental-state theory of welfare, argue that moral sentiments are not based on mental-states, but rather, economic models should include preference-based welfare theories.

It must be said that Hausman and Macpherson are not wholly satisfied with preference satisfaction. They say that it mistakenly suggests that all policies should attend to individual preferences, even if they’re antisocial or expensive. They judge preference satisfaction from a public policy point of view. But the overall argument is that we need to include preferences in economic models. A preference-satisfaction theory of well-being is easily and better-suited to work with fundamental welfare economic theory. The mental-state theory of well-being is not the only answer either. The synthesis of mental-state theories and individual preference theories forms the basis of moral interactivity and public policy. Adam Smith’s mental-state theory simply does not disappear; it is not, as Hausman and Macpherson suggest, a defunct theory.